Low Carbon Development Scenario

Chapter 2

Low-Carbon Development Scenario

Overview
• Vietnam’s Green Growth Strategy (VGGS) sets an ambitious but realistically
achievable goal to reduce carbon dioxide (CO2) emissions by 20 percent compared with the business-as-usual (BAU) scenario by 2030. Low-carbon development (LCD) options assessed in this study show that it is possible for
Vietnam to cut back its annual emissions by 7.5  percent by 2020—and
10.6 percent by 2021 (compared with the BAU scenario). This represents a
year’s delay in meeting the VGGS target of a 10 percent reduction by 2020
but exceeds the target of a 20 percent reduction by 2030.
• Achieving LCD will require an aggressive, all-encompassing drive to implement numerous measures across several sectors (electricity demand in industry and residential sectors, fuel demand in industry and transport, electricity
generation, and supply of transport services). Analysis of the marginal abatement cost (MAC) demonstrates the economic viability of a wide range of
options that would allow emissions to be reduced beyond the VGGS targets.
• By 2030, CO2 emissions in the LCD scenario would be 28 percent below the
level reached in the BAU scenario.
• Emissions reductions are equally shared between demand-side and supply-side
options. Most of the initial reduction is through efficiency improvement and
energy conservation in the industry and residential sectors.
• Thirty percent of emissions reductions arise from end-use energy efficiency in
household appliances and industry technologies. The resulting lower electricity demand helps lower power capacity requirement by an equivalent of
11.7 gigawatts (GW) during the modeling period. Other demand-side gains
are found in fossil-fuel savings in the industry sector (21 percent of emissions
reductions).

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12

Low-Carbon Development Scenario

• The transport sector is responsible for 9  percent of emissions reductions.
Supply-side changes in the electricity supply mix displace a total of 13.7 GW
of coal capacity (9.8 GW of supercritical coal plants and 3.9 GW of subcritical
coal plants).
• A low-carbon investment strategy is needed to switch from the BAU portfolio;
the incremental investment required is a modest 1 percent of gross domestic
product (GDP) during 2010–30. The incremental cost is projected to be
$3  billion per year between 2010 and 2020, and estimated to decline to
$1 ­billion per year during 2021–30.

Introduction
Low-cost energy and other natural resources have played a key role in driving the
Vietnamese economy over the past decades. But current consumption and production patterns, accompanied by urbanization at an unprecedented pace, are
placing enormous pressure on these resources. The resulting environmental deterioration could undermine human productivity and the quality of the resource
base, and limit the country’s future growth potential.1
Vietnam is also vulnerable to the multifaceted impacts of global climate
change, and will be increasingly prone to environmental risks (MONRE 2010).
Densely populated coastal cities are exposed to rising sea levels and intensifying
tropical cyclones, while inland areas will have to cope with greater climate variability that results in droughts and floods (World Bank 2013). The rising temperature will increase economic burdens, ranging from health risks to higher
electricity bills.
Vietnam is already convinced that development as usual has put the country
on an unsustainable path. Green growth—a growth path that prioritizes longterm developmental and environmental sustainability—has emerged as a new
and desirable economic model in Vietnam, and has moved into the mainstream
of the country’s policy discourse over the recent years. The VGGS recognizes
that green growth is essential for the country’s long-term economic
development.2
The remainder of this chapter is organized as follows. “Methodology” provides
a brief description of the methodology used. “Toward Low-Carbon Development”

presents the LCD scenario—a possible low-carbon pathway for Vietnam developed in the process of this study—and compares it against BAU. It also analyzes
technology and policy levers within the LCD scenario. “Achieving Green Growth
Targets” evaluates the LCD scenario against the VGGS targets for CO2 emissions
reductions. “The Economics of Low-Carbon Development” discusses the economic implications of the LCD scenario, focusing on the cost-effectiveness of
mitigation options, and overall investment requirements. The final section provides key recommendations. The analysis focuses on energy-related sectors
including power generation, industry, transport, and residential sectors between
2010 and 2030.
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Low-Carbon Development Scenario

Methodology: The BAU and LCD Scenarios
This study considers two development and emissions trajectories, namely the
BAU and the LCD scenarios. The BAU scenario provides a reference path against
which the LCD scenario is assessed in terms of greenhouse gas (GHG) mitigation
and economic impacts. The BAU scenario estimates Vietnam’s emissions, assuming the country makes no further investments or policy reforms beyond those
already committed or approved by 2012. The LCD scenario encompasses a distinct set of actions that are consistent with the targets set in the VGGS.
The key drivers across both the BAU and the LCD scenarios are the
following:
• GDP growth per year: 6.99 percent (2011–15), 7.05 percent (2016–20), and
7.18 percent (2021–30)—consistent with the low case demand projection of
Power Development Plan VII (PDPVII)
• Population growth per year: 1 percent (2011–20) and 0.7 percent (2021–30)
(ADB 2013; Dung and Sawdon 2012)
• Urbanization rate per year: from 25.5 percent of the total population in 2010
to 34.3 percent in 2020 and to 44.1 percent in 2030 (ADB 2013; Dung and
Sawdon 2012)
• Fuel prices: at full cost-recovery levels by 2015, with distinct prices for domestic and imported fuels (as projected by the Institute of Energy Vietnam, IEVN)
An extensive consultation process concluded that these assumptions represent a plausible macro- and socioeconomic trajectory in Vietnam, considering
historical and current trends (see appendix E for specific data on these

assumptions).
Both scenarios are for the time period 2010–30, matching the time horizon of
the concrete targets for the energy sector stipulated in the VGGS. The CO2
accounting/modeling framework covers energy-related sectors that include
power generation, transport (electricity and fuel consumption in road, rail, and
water-borne transport),3 industry (electricity and fuel consumption in iron and
steel, cement, fertilizer, pulp and paper, and refinery), generic analysis of electric
use by “all other” industries, residential (electricity consumption from lighting
and the use of appliances), and nonresidential (use of electricity and liquefied
petroleum gas).

The Business-as-Usual Scenario
The development of the BAU scenario for the power generation sector involves
the following four basic steps:
1. An inventory of the installed capacity and the actual electricity generation in
2010, calibrated at the plant level to the National Load Dispatch Center
(NLDC) report, which was published by Electricity Vietnam (EVN) in 2010.
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Low-Carbon Development Scenario

2. The addition of planned capacity between 2011 and 2030, based on the plantlevel capacity expansion plan provided in the PDPVII, which defines the supply response to the base case demand projection.
3. The reduction of planned capacity additions from the PDPVII base case to the
low case demand projection, representing this study’s BAU scenario. The
capacity reduction is guided by the least-cost approach, which prioritizes those
technology options with lower levelized costs of energy (LCOEs). This study

also assumes that investment decisions to adopt the low demand case begin in
2013, and assumes construction periods (four years for coal, 2.5 years for gas,
and two years for wind) for those plants that are already committed. All electricity import is assumed to be hydro, while plant retirements follow the
IEVN’s’s identifications.
4. The development of electricity generation and dispatch profile are in accordance with the generation mix in PDPVII, taking into account take-or-pay
arrangements in domestic gas supply, and the domestic coal and gas production constraints following the projections from Vinacomin.
The demands from end-use sectors are primarily driven by the macro- and
socioeconomic assumptions described above. The transport sector’s BAU scenario is developed by the Transport Development Strategy Institute (TDSI) and
includes projects currently in development, while the BAU construction for the
industry’s sector is undertaken by the IEVN according to sectoral master plans.
The modeling of the ownership of appliances and private motor vehicles is built
on the household-level econometric analysis of the Vietnam Household Living
Standards Survey (VHLSS), published in 2010.

The Low-Carbon Development Scenario
The LCD scenario analyzes low-carbon options that are considered technically
and economically feasible for Vietnam.4 As many as 66 specific low-carbon measures are selected from the various sectors and are included in the LCD scenario
modeling. Beyond the 66 options, the scenario also includes electricity savings
due to generic energy-efficiency improvements in “all other” industry subsectors
(assuming 1 percent improvement per year based on international experience)
and for other household appliances that are not explicitly evaluated.5
MAC analysis is conducted for 68 measures (see appendix B for a full list),
including the abovementioned 66 specific options, electricity savings due to
generic energy-efficiency improvements in other industry subsectors, and
supercritical coal-fired power generation. Note that the LCD scenario does not
include the supercritical coal option, as investments in this technology are
considered part of the BAU scenario. In the LCD scenario supercritical coal is
among the coal-combustion technologies to be possibly replaced by other,
cleaner options.
The development of the LCD scenario for the power sector begins with

cost-effective, demand-side measures that reduce generation requirements
Exploring a Low-Carbon Development Path for Vietnam  •  />

Low-Carbon Development Scenario

starting in 2015. The displacement of planned coal plant additions begins in
2021, allowing time for energy-efficiency improvements to displace new plant
additions and for needed renewable-energy plant location and grid integration
studies. This translates into the following analytical steps:
1. The reduction of the planned capacity addition from the power sectors’ BAU
to match the lower level of electricity demand resulting from end-use efficiency measures implemented in the industry and the residential sectors (net
of electricity demand increase from greater penetration of electric bicycles, or
e-bikes, in the transport sector). This intermediate step is referred to as the
EE$10 Scenario.6 Again, this is based on the least-cost approach using the
LCOE as a guiding indicator, and takes into account construction lead times
for different plant types.
2. The next step to complete the LCD scenario is the displacement of some
planned coal-fired capacity (both subcritical coal plants using domestic anthracite and supercritical coal plants using imported bituminous coal) remaining
from the preceding step in the 2021–30 period.
3. The addition of cleaner capacity from biomass, nuclear, combined-cycle gas
turbines (CGGTs) using imported liquefied natural gas (LNG), and CCGTs
paired with solar photovoltaic (PV), wind, and hydro, to generate the equivalent of the coal-based electricity displaced.
All modeling and analysis are performed by the World Bank team, with inputs
from the Central Institute for Economic Management or CIEM (macroeconomic
assumptions and analysis), TDSI (data for transport sector), IEVN (data for the
five industries, household, and power sectors), and Ernst and Young (data on
energy efficiency and MAC calculations for industry and household sectors). The
World Bank team closely cooperated with the Asian Development Bank (ADB)
and the United Nations Development Programme (UNDP) to harmonize
assumptions and baseline datasets.

Similar analytical exercises have been undertaken. These include, for example, the analysis undertaken by the Ministry of Natural Resources and
Environment or MONRE (2010) as part of Vietnam’s National Communications
to the United Nations Framework Convention on Climate Change; an ADB
(2013) Technical Working Paper on GHG Emissions, Scenarios, and Mitigation
Potentials in the Energy and Transport Sectors of Vietnam (draft); and the
UNDP-MPI (2012) Background Analysis of Marginal Abatement Costs for the
Green Growth Strategy (unpublished). A comparative analysis between these
and the World Bank’s study suggests (i) a divergence of results in terms of mitigation potential, largely explained by the difference in scope of analysis and
assumptions in critical parameters (such as discount rates), that does not mask a
broad convergence of results—pointing to a consistent set of low-carbon
actions—and (ii) the complementarity of the studies, which can be viewed as
sensitivity analyses of one another. A snapshot of the key features and outcomes
of the three studies is provided in table 2.1.
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Low-Carbon Development Scenario

Table 2.1  Comparisons across Vietnam’s Recent Low-Carbon Studies

Study

Coverage

MONRE Energy end use in
(2010)
transport, industry,

agriculture,
residential, and
commercial + energy
production
ADB
Energy end use in
(2013)
transport, industry,
agriculture,
residential, and
commercial + power
generation and
energy
transformation
UNDPEnergy end use and
MPI
power generation
(2012)
World
Energy end use in
Bank
transport, industry,
(2014)
residential, and
commercial + power
generation

Model

CO2

CO2
Emissions Emissions in
in 2010 2030 under
(MtCO2 ) BAU(MtCO2 )

Mitigation
potential
during
2010–30
(MtCO2 )

Number of lowcarbon options
analyzed

Reaching
VGGS
target in
2030

LEAP

113

471

192

15

Unlikely

LEAP &
EFFECT

~150

~640

1,200

35

Likely

MACC Builder
Pro + IPCC
guidelines
EFFECT

129

615

227

35

Unlikely

110

495

845

66 + additional
Likely
energyefficiency
improvements

Source: ADB (Asian Development Bank) 2013; MONRE (Ministry of Natural Resources and Environment (MONRE) 2010; UNDP (United Nations
Development Programme)–MPI (Migration Policy Institute) 2012; World Bank 2014. MONRE (2010) and UNDP-MPI (2012) also cover GHG
emissions in agriculture and land use, land-use change, and forestry sectors. But results from only the energy sector are used here for comparison
across the studies.
Note: BAU = business as usual; CO2 = carbon dioxide; EFFECT = Energy Forecasting Framework and Emissions Consensus Tool;
IPCC = Intergovernmental Panel on Climate Change; LEAP = Low-range Energy Alternatives Planning system; MACC = marginal abatement cost
curve; MtCO2 = million tons of carbon dioxide; VGGS = Vietnam Green Growth Strategy.

Toward Low-Carbon Development
Vietnam’s CO2 emissions will increase 4.5-fold under the BAU scenario during
2010–30. The CO2 emissions from the largest emitting sectors of energy, industry, and transport are calculated to be 110 million tons of carbon dioxide
(MtCO2) in 2010. These include emissions from (i) electricity generation;
(ii) energy use in road, rail, and water transport; (iii) energy use and process emissions in the industry sector; and (iv) energy use in the nonresidential sector.
Those emissions under the BAU are projected to rise to 279 MtCO2 in 2020, and
reach 495 MtCO2 in 2030—4.5 times the emissions in 2010. In transitioning to
an LCD scenario, a range of emissions-reduction measures is evaluated.
This study focuses on low-carbon options (LCOs) that are technically and economically feasible today for Vietnam.
A number of economically viable options are available to help Vietnam transform its usual practices into a low-carbon investment strategy. Figure 2.1 shows
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Low-Carbon Development Scenario

Figure 2.1  CO2 Emissions: Business as Usual vs. Low-Carbon Strategy, 2010–30
500
450
400
350
MtCO2

300
250
200
150
100
50

Power generation (end-use energy efficiency)
Power generation (supply options)
Industry

30

29

20

28

20

27

20

26

20

25

20

24

20

23

20

22

20

21

20

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

20

20

10

0

Transport
LCD emissions

Source: World Bank estimates.
Note: The upper contour represents total BAU emissions, while the areas between the BAU emissions and LCD emissions
show emissions reduction wedges. BAU = business as usual; LCD = low-carbon development; MtCO2 = million tons of
carbon dioxide.

CO2 mitigation potential in the power generation, industry, and transport sectors.
The reduction potential in the power sector is a result of (i) energy-­efficiency
improvements in electrical appliances in the residential sector, (ii) electricity savings from industrial energy-efficiency measures, and (iii) fuel switching in electricity generation, from coal to natural gas, nuclear, and renewable energy sources
including hydropower, wind, solar, and biomass. Although the modeling base year

is 2010, the LCD scenario assumes that policy and investment decisions to move
from BAU to LCD will happen in 2015, taking into account lead time and prior
commitment to infrastructure development and plant construction. Further
sector-specific details and assumptions associated with individual mitigation
options are provided in respective sections of this report.
The impacts of low-carbon investments will grow over time, with cumulative
emissions reductions amounting to 845 MtCO2 by 2030.7 Under the LCD scenario Vietnam’s annual CO2 emissions are projected at 258 MtCO2 in 2020
(a  7.5  percent reduction relative to the BAU scenario), and at 358 MtCO2
in 2030 (a 27.7 percent reduction). In cumulative terms, total CO2 mitigation
for the sectors under consideration amounts to 845 MtCO2 between 2010 and
2030, with over two-thirds of the overall reduction coming from the power generation sector (figure 2.2).8 CO2 reductions from the transport and industry
sectors constitute about 30 percent of the total reduction—that is, 253 MtCO2
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Low-Carbon Development Scenario

Figure 2.2  Share of Cumulative Emissions Reductions: LCD Scenario,
2010–30
Percent
Transport,
9
Power generation
(end-use energy
efficiency),
30

Industry,
21

Power generation
(supply options),
40
Source: World Bank estimates.
Note: LCD = low-carbon development.

avoided during 2010–30—and are more than double the amount of CO2 emitted
over the entire year in 2010.
Both demand- and supply-side measures are key elements of the LCD
­scenario. Electricity savings from demand-side measures in the end-use sectors and
supply-side clean technology options are estimated to result in the abatement of
592 MtCO2 by 2030. Energy-efficiency improvements in industry and household
sectors (that reduce electricity demand) alone would help lower the power capacity requirement of 11.7 GW during the modeling period. Consequently, the
demand-side energy-efficiency measures mitigate 251 MtCO2 by 2030—
42 percent of total emissions reductions from electricity generation.
Natural gas and renewable energy together play a critical role. Supply-side
options contribute another 58 percent of total emissions reductions within the
electricity generation sector (341 MtCO2) by 2030. These options include
replacing subcritical coal-fired power plants (using domestic anthracite) and
supercritical coal-fired power plants (using imported bituminous coal) with biomass, nuclear, and CCGTs using imported LNG alone and then pairing with
solar PV, wind, and hydro. All supply-side options displace the total of 13.7 GW
of coal capacity (9.8 GW of supercritical coal plants, and 3.9 GW of subcritical
coal plants). Table 2.2 compares the power capacity mix of the BAU and LCD
scenarios developed in this study and data from the PDPVII Prime Minister’s
Decision document.
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Low-Carbon Development Scenario

Table 2.2  Installed Capacity Mix in BAU, LCD, and PDPVII Base, 2020 and 2030
Percentage share
2020
Coal
Natural Gas
Hydroelectricity
Nuclear
Renewable

2030

BAU

LCD

PDP7 Base

BAU

LCD

PDP7 Base

46
16
32
2
3

44
17
33
2
3

47
16
25
1
5

62
8
20
8
1

42
18
21
9
9

49
11
15
6
9

Source: World Bank estimates based on PDPVII PM Decision (July 2011).
Note: All numbers are percentage shares. Includes domestic grid capacity, and excludes captives and import. BAU = business
as usual; LCD = low-carbon development; PDPVII = Power Development Plan VII.

Achieving Green Growth Targets
The VGGS aims to (i) reduce GHG emissions from energy activities by 10 to
20  percent compared with the BAU case during the 2011–20 period and
(ii) reduce the same by 20 to 30 percent compared with the BAU by 2030. The
lower targets are formulated as Vietnam’s voluntary reduction, but levels of
effort beyond these will require additional international support. Because the
targets are tied to BAU, the absolute emissions reductions necessary to achieve
the VGGS targets depend critically on how the BAU’s emissions level is officially
developed. The VGGS document does not establish the BAU’s emissions levels,
nor does it specify how the BAU scenario would be updated over time.
The VGGS sets ambitious but realistically achievable goals. This study illustrates a way in which Vietnam could transition to an LCD path that is consistent with the emissions-reduction targets envisaged in the VGGS. Figure 2.3
shows that the LCD scenario developed under this study would help Vietnam
cut back its annual emissions by 7.5  percent by 2020, and 10.6  percent by
2021—a year’s delay in meeting the VGGS 2020 targets. Most of the initial
reduction would be realized through efficiency improvements and energy conservation in the industry and residential sectors. Efforts to switch from coal to
cleaner fuels in electricity generation would significantly accelerate Vietnam’s
CO2 mitigation after 2020. Annual emissions reductions would hit the
20  percent target by 2026, and reach 27.7  percent compared with the BAU
scenario in 2030.
The LCD scenario is projected to mitigate 845 MtCO2 between 2011 and
2030, with 62 MtCO2 saved during 2011–20 (3.2 percent of cumulative BAU
emissions) and 761 MtCO2 saved during 2021–30 (19.4 percent of cumulative BAU emissions).9 Such results depend on the implementation schedule of
the mitigation options, and should be updated and revisited as VGGS efforts
progress. All in all, this study demonstrates that the objectives (pertaining to
emissions reductions from energy activities) set out in the VGGS are realistically achievable.

The carbon intensity of the Vietnamese economy and per capita emissions
will improve significantly with the LCD measures. Low-carbon growth
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Low-Carbon Development Scenario

Figure 2.3 Emissions Reductions under LCD Scenario, 2010–30, Relative to BAU
0

–5

Percent

–10

–35

–20

–25

30

29

20

28

20

27

20

26

20

25

20

24

20

23

20

22

20

21

20

20

20

19

20

18

20

17

20

16

Transport
Industry

20

15

20

14

20

13

20

12

20

11

20

20

20

10

–30
Power generation (end-use energy efficiency)
Power generation (supply options)

Source: World Bank estimates.
Note: BAU = business as usual; LCD = low-carbon development.

performance can be assessed through various dimensions. Measured on a per
capita basis, the LCD scenario is projected to substantially improve Vietnam’s
carbon footprint per capita, without jeopardizing people’s energy access and use.

The CO2 emissions under the LCD scenario would be 0.22 and 1.36 tons per
person lower than those under the BAU scenario, in 2020 and 2030, respectively
(­figure 2.4). The CO2 emissions per unit of GDP under the BAU scenario are
projected to increase slightly and peak at approximately 1.36 tCO2 per thousand
GDP (at purchasing power parity) by 2022. Beyond this point, CO2 intensity
would drop to around 1.19 tCO2 per thousand GDP by 2030. As expected, CO2
intensity is lower under the LCD scenario, peaking earlier than under the BAU
scenario at 1.26 tCO2 per thousand GDP in 2019, then declining 0.86 tCO2 per
thousand GDP in 2030.
Energy pricing reforms and efforts to remove fossil-fuel subsidies are gaining momentum in Vietnam and have potentially significant environmental
benefits. This is evident in the plan to move to cost-recovery electricity pricing
in the PDPVII, as well as in the road map to market-based pricing in the coal
sector (resolution number 10/11/QH13). In fact, the price transition is already
under way, and coal prices and electricity tariffs have been increasing in recent
years (announcement 244/TB/VPVP and Prime Minister’s Decision 24).
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Low-Carbon Development Scenario

Figure 2.4 Emissions Intensity and Emissions per Capita, 2010–30, BAU vs. LCD
Scenarios

tCO2/$thousand GDP (PPP) and tCO2/person

6

5

4

3

2

1

Emissions per capita (BAU)

Emission intensity (BAU)

Emissions per capita (LCD)

Emission intensity (LCD)

30

29

20

28

20

27

20

26

20

25

20

24

20

23

20

22

20

21

20

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

20

20

10

0

Source: World Bank estimates.
Note: tCO2/$thousand GDP (PPP), tCO2/person. BAU = business as usual; GDP = gross domestic product;
LCD = low-carbon development; PPP = purchasing power parity; tCO2 = tons of carbon dioxide.

In the context of the VGGS, it is important that Vietnam establish a mechanism to evaluate how such policies perform and to track the resulting emissions reductions over time.10
Per unit electricity costs under the LCD scenario are projected to be slightly
higher than those in the BAU scenario, as discussed in detail in chapter 6.
Although any prediction of the impact is highly uncertain, historical observation
suggests that consumers would likely respond to the higher electricity prices by
curbing their electricity demand.11 Based on a conservative estimate of the price
elasticity of electricity demand, the higher prices would reduce electricity
demand in 2030 by about 2,850 gigawatt-hours (GWh) (1 percent) relative to
the LCD demand. Assuming the median elasticity estimate, demand reduction
in 2030 would be approximately 9,930 GWh (2 percent).12 This reduction in
electricity demand would have a meaningful impact on CO2 emissions, ranging
from 2.3 MtCO2 to 8.1 MtCO2 in 2030 alone.13

The Economics of Low-Carbon Development

What does it take to restructure the economy as envisaged in the VGGS? Taming
the growth of CO2 emissions requires a comprehensive policy package that provides the right incentives, removes barriers and market failures, and generates
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Low-Carbon Development Scenario

substantial investment by both public and private sectors in green infrastructure
and technologies. It is also important to steer the low-carbon transformation in
an economically efficient manner by exploiting cost-effective solutions today.
Despite its limitations and inherent uncertainty,14 the marginal abatement
cost curve (MACC) offers an overview of the cost and abatement potential of a
set of mitigation options across relevant sectors. It should be noted that while the
MACCs rank emissions reductions from the cheapest to the most expensive, they
are not prescriptive of any particular implementation schedule.15 Sixty-eight
mitigation measures are evaluated in this study, and may be useful to the policy
dialogue and consensus-building process.16
Figure 2.5 presents Vietnam’s MACC during 2010–30.17 The mitigation
potential is presented as a sum of annual emissions reductions over a certain
period. Potential power supply options are measured throughout the lifetime of
power plants; options in the end-use sectors are measured up to 2030 and are
based on assumed penetration rates for the cleaner technologies considered. For
the latter, the total mitigation potential over the lifetime would be much larger,
as many of these investments have lifetimes that extend beyond the modeling
time horizon.
About 40 percent of the total mitigation potential during 2010–30 is “winwin” with net negative costs. The MAC analysis shows that 40  percent of the
cumulative mitigation potential not only reduces CO2 emissions but also results
in net cost and energy savings. These win-win options are in end-use sectors such
as industry, transport, and residential buildings. Another 58 percent of total MAC

potential has incremental costs lower than $10/tCO2e (tons of carbon dioxide
equivalent), indicating their economic viability given the general trend of the
international carbon market.18
As Vietnam’s economy continues to grow significantly over the 2010–30
period, substantial capital investments are required in both the BAU and the
LCD scenarios. But the investment profiles differ significantly between the two.
Table 2.3 lists the total capital costs associated with BAU and specific MAC
options, as evaluated in this study. Costs are concentrated in the power generation and transport sectors. For power generation, capital costs include investment
in the construction of new power plants and the renovation of existing plants; in
transport, costs include capital expenditure on new vehicles or vessels and rail or
metro infrastructure (the latter constituting investment of around 10 percent of
the transport total). Total capital costs during 2021–30 are nearly double those
of 2010–20 in both the BAU and the LCD case; cumulative costs throughout the
modeling period exceed $700 billion.
The additional cost of moving from the BAU to the LCD scenario is estimated
at $2 billion per year on average during 2010–30—approximately 1 percent of
the projected annual GDP. The incremental cost is projected to be $3 billion per
year between 2010 and 2020, declining to $1 billion per year during 2021–30.
The change of investment profile from the BAU to LCD would avoid 804
MtCO2 over the 20-year period (95  percent of the total reduction potential
under the LCD scenario). Although there are positive MACs associated with
Exploring a Low-Carbon Development Path for Vietnam  •  />



Figure 2.5  Vietnam’s Marginal Abatement Cost Curve, 2010–30
Cumulative abatement potential 2010– 2030 MtCO2
Biomass
Solar heaters

50

Cement
Nuclear

Abatement cost $/tCO2

0

−50

−100
Waste heat recovery
Residential lighting
Air conditioners
Refrigerators
Private vehicles
Electric bikes
Inland waterways

−150

−200

50

100

150

200

250

300

Hydro
Other efficiency measures
Solar
Furnaces
Wind
LNG
Continuous casting
Supercritical coal
350

400

450

500

550

600

650

700

750

Source: World Bank estimates.
Note: The figure depicts marginal abatement costs (MACs) and potential emissions reduction up to $10/tCO2 for visualization purposes. The entire range of MACs (with those over $10/tCO2) can be
found in appendix B. Because of limited space, the option legends do not show all the mitigation options analyzed. LNG = liquefied natural gas.
MAC is defined as the ratio of the difference between the costs of the low carbon and baseline option (in present values) to the difference between the emissions from the low carbon and baseline
option. Costs include capital expenditures (CAPEX), operating and maintenance expenditures (OMEX), and fuel expenses (FUELEX). All costs are expressed in 2010 U.S. dollars and discounted using a
social discount rate of 10 percent. Emissions in power supply options are measured through the lifetime of power plants. Emissions associated with options in end-use sectors are measured up to 2030
on the basis of assumed penetration rates of the cleaner technologies.
MtCO2 = million tons of carbon dioxide.

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Low-Carbon Development Scenario

Table 2.3 Total Investment in the BAU and LCD Scenarios, 2010–30
2010 $ billion

2010–20

2021–30

2010–30

BAU
Power generation
Transport

Industry
Residential
Total

69
187
0
6
262

98
370
0
13
480

166
556
0.09
20
742

LCD
Power generation
Transport
Industry
Residential
Total

67

190
1
7
264

91
382
3
14
490

158
571
4
21
754

2
33
35
3
2.1

9
4
14
1
0.4

12

37
49
2
1.0

Incremental cost
Subtotal*
All other industry**
Total
Average annual
% of projected GDP

Source: World Bank estimates.
Note: The costs in this table represent economic capital costs and are not discounted. Metropolitan
transport, or metro, is excluded from the marginal abatement cost (MAC) (figure 2.5) because it does not
yield net emissions reduction within the 2030 time horizon. But metro is included in table 2.3 because its
investment under the BAU and LCD scenarios is made during 2010–30 with significant mitigation impacts
expected beyond 2030. In industry the cost includes capital costs of low-carbon technologies and
equipment only and does not include construction of new industrial plants; it includes all MAC options
evaluated in this study in iron and steel, cement, fertilizer, pulp and paper, and refinery; the cost under BAU
reflects indigenous efficiency improvement only. In residential, the cost includes capital costs of new
appliances and includes all (five) MAC options evaluated in this study and excludes the generic energyefficiency improvement assumed in the overall LCD scenario for other appliances.
* Subtotal incremental cost includes power generation, transport, industry (MAC options only), and residential
sectors; ** “All other” industry represents incremental costs associated with the generic energy-efficiency
improvement of 1 percent per year assumed in the overall LCD scenario beyond the industries (iron and steel,
cement, fertilizer, pulp and paper, and refinery) whose MAC options are specifically evaluated.
BAU = business as usual; GDP = gross domestic product; LCD = low-carbon development.

switching to new technologies in the power generation sector, the LCD scenario
lowers costs (that is, it yields net negative incremental costs) in the sector

through significant energy savings from end-use sectors and thus lower capacity
requirements.
The VGGS, together with the National Action Plan on Green Growth, provides a crucial first step. But more aggressive efforts beyond the VGGS are likely
needed to put Vietnam on a low-carbon and sustainable development pathway
in the long term. Substantial investment will be required not only to improve
efficiency and reduce emissions but also to make those investments resilient and
robust against future climate risks. A synergy between public and private financial flows is essential for the magnitude of investment requirements: the key is to
use limited public sector funds, incentive frameworks, and price signals to leverage private capital.
Exploring a Low-Carbon Development Path for Vietnam  •  />

Low-Carbon Development Scenario

Over the next 20 years and beyond, the cities throughout Vietnam are
expected to expand tremendously. As millions of Vietnamese switch to an urban
lifestyle and seek the convenience and comfort of modern modes of transport for
better connectivity, the number of motor vehicles is expected to grow rapidly.
The country will continue to build new power and industrial plants, new infrastructure, and new commercial and residential buildings. The window of opportunity is limited: immediate action is needed to capture the full potential of clean
technologies, and to avoid inefficient infrastructure lock-ins.

Key Recommendations
• Build consensus on the definition of Vietnam’s BAU scenario at the national
and sectoral levels, and develop guidelines and institutional processes for the
periodic update of the BAU scenario for national and international purposes.
• Building on the National Action Plan on Green Growth, conduct a comprehensive policy and technological mapping across sectors; revisit sector master
plans and recommend revisions on additional actions and investment required
to meet VGGS targets.
• Consider market, economic, and fiscal instruments to support low-carbon
investments and provide the right incentives for private sector actions. This in
turn requires the proposal of various policy designs and in-depth analysis of
their impacts, trade-offs, and interactions with other measures and policy

options.
• Develop a national-scale measurement, reporting, and verification (MRV)
system to track the progress of LCD policies and to account for emissions
reductions associated with the VGGS targets and beyond. Such an MRV
system should provide a common framework for project-, program-, and
policy-level mitigation activities, and be coordinated with the national GHG
inventory.

Notes
1. /> 2.Vietnam National Green Growth Strategy (Prime Minister’s Decision No. 1393/
QD-TTg, September 25, 2012, Hanoi).
3.International transport is not included.
4.The study initially used $10/tCO2 as a screening threshold for the selection of lowcarbon measures to be included in the MAC analysis. But the analysis later suggests
that the level of emission reductions in line with the VGGS target could be reached
with a much lower MAC.
5.Preliminary assessment suggests that such energy-efficiency improvements in Vietnam
involve reasonable MACs (less than $3/tCO2).
6.EE$10 represents the scenario that includes electric demand saving measures with the
MAC of up to $10/tCO2.
7.This study evaluated an extensive set of low carbon options. Effective pursuit of all
possible low carbon options may produce a reduction of 845 MtCO2. The Government
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26

Low-Carbon Development Scenario

of Vietnam may wish to select a subset of low carbon options that produce the most

significant reductions with the greatest likelihood of success. One illustrative subset of
31 low carbon options could produce 751 MtCO2 reduction and yield a net benefit
of $7.0 billion. This subset would still easily meet Vietnam Green Growth Strategy
goals for 2030.
8.The distribution of emission reductions for an 845 MtCO2 reduction program also
differs from a more focused 751 MtCO2 reduction program. The less aggressive subset
would have less emphasis on transport and industry and increased focus on power
sector demand reductions.
9.As previously noted, this study offers an extensive menu of possible low carbon
options for the Government of Vietnam’s and other stakeholders’ consideration and
plausible ranges from 750 to 845 MtCO2. The all-inclusive set of measures has been
used throughout the study to provide a full range of options.
10.Vietnam will benefit from activities that support the measurement, reporting, and
verification (MRV) of energy pricing reform policies. Policy-based MRV would likely
complement other MRV approaches being developed. The policy MRV tool would
also provide relevant ministries and agencies with useful information for further
implementation of energy price reform, as well as lay a needed foundation toward
attracting additional finance. Such revenues could be utilized to facilitate the price
adjustment process or buy down the costs associated with putting in place measures
to minimize any undesirable social and economic impacts of the policy.
11.See, for example, Dahl (2011).
12.The conservative estimate uses −0.04 price elasticity of demand based on the 3rd quartile of 1,450 price elasticity estimates. The median price elasticity is −0.14 (Dahl 2011).
13.This assumes the demand reductions avoid 983 tCO2/GWh during 2010–18 and
811 tCO2/GWh during 2019–30, due to displacement of subcritical and supercritical
coal-fired power plants at the margin in power sector modeling, respectively.
1
4.MAC analysis is highly sensitive to underlying assumptions such as scenario
design, time horizon, baseline, cost parameters, discount rate, and so on. A major
limitation is MAC’s limited definition of cost that includes only capital, operational, and fuel expenditures, and typically excludes hidden costs or barriers and
transaction costs.

15.An underlying assumption when building MACCs is that action to promote each
emissions-reduction option starts as soon as possible. Implementing only the cheapest
options in the short term would lead to underinvesting in high-potential but expensive and long-to-implement options, such as clean transportation infrastructure, possibly locking the economy in a carbon-intensive pathway (Vogt-Schilb and Hallegatte
2014; Vogt-Schilb, Hallegatte, and Gouvello 2014).
16.Total mitigation potential from the specific measures considered for MAC analysis is
a subset (95 percent) of the total emission reduction in the LCD scenario. See also the
section in this chapter on methodology.
17.Figure 2.5 compares MACs for 19 labeled low carbon options plus a number of additional LCOs with small individual emission reduction impacts. Total reductions from
2015 to 2030 are about 760 MtCO2 compared to 845 MtCO2 from all measures that
were evaluated. Emission reductions and MACs for individual measures by sector are
provided in table B.1.
18.Only 2 percent of the total emissions reduction potential evaluated for MAC has a
net incremental cost of over $10/tCO2.
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Low-Carbon Development Scenario

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